Obama Stakes His Fortunes on Failed Banksters

[girl gone mad]

Obama Stakes His Fortunes on Failed Banksters

April 9 (http://www.bloomberg.com/apps/news?pid=20601039&refer=columnist_weil&sid=aNMQDysdnKRc">Bloomberg) -- Now that we have a rough idea how President Barack Obama and his lieutenants plan to prop up insolvent financial institutions using taxpayers’ money, we’re left with a more difficult question: Why?

Why doesn’t the Obama administration force insolvent banks and insurance companies to come clean about their losses first? It’s the “why” that’s so vexing. The who, what, when, and how are mere details, by comparison.

More than anyone else’s, it should be in Obama’s political self-interest to accelerate the worst of the financial crisis and get as much of the inevitable pain behind us as quickly as possible. Every day he waits is one less day he will have between the time we hit rock bottom and the next election. And yet, Obama and his minions are doing all they can to delay the reckoning, which only will make it worse.

When publicly owned companies change management, often the smartest thing a new chief executive officer can do is clear the decks and take a “big bath” charge to earnings. In other words, the company writes off all its worthless assets and reports huge losses, pushing every conceivable drop of red ink into the past. The new CEO gets to blame his predecessor’s dumb mistakes. The company gets a fresh start with the investing public.

Obama could have taken the same approach with the banks the moment he took office, while he still had standing to blame the financial crisis on George W. Bush’s administration, stupid regulators, and corrupt lawmakers -- that is, everyone but himself.

Executive Order

He could have ordered all U.S. financial institutions to immediately confess whatever losses they hadn’t yet recognized. And he could have backed that up by vowing to prosecute every officer, director and auditor the Justice Department could find who had approved numbers they knew to be wrong.

Obama didn’t do that. And now, six months into the government’s Troubled Asset Relief Program, his administration’s approach to the financial crisis is largely indistinguishable from its predecessor’s. The only objective, it seems, is to buy time, in hopes that an economic recovery somehow will materialize and lift the financial system back to health.

The Obama administration’s “strategy,” for lack of a better word, is to keep plying broken financial institutions with as much taxpayer money as the government can print. And so the government will keep subsidizing failed mega-banks indefinitely, rather than placing any into receivership or liquidating them.

Taxpayers at Risk

The latest iteration of this policy is the Treasury Department’s Public-Private Investment Program. In short, struggling financial institutions will be encouraged to swap their most toxic mortgage-related assets with one another at inflated prices. The purchases will be financed by big government loans, so that taxpayers are at risk for the bulk of any losses.

If the government wanted transparency, it would force financial institutions to write down their bad assets now, and figure out afterward which companies deserve taxpayer support. Instead, the Treasury plans to recapitalize them first, keep their current financial condition hidden, and let their failed managers stay in their jobs.

The key assumption underlying this plan is that the declines in the values of these companies’ toxic assets are the result of private investors’ temporary reluctance to buy them, and that prices will rebound if Treasury can revive the markets where these assets trade.

http://www.bloomberg.com/apps/news?pid=20601039&refer=columnist_weil&sid=aNMQDysdnKRc">More...

[KharmaTrain]

1. Banks Are Not Bankers...

Again...I keep asking if people would be willing to endure a complete banking collapse is the "too-large-to-fails" really do fail. Even those who don't have money in these banks or think they're insulated (unless you live in a cave), the full collapse of the banking system would lead to a near collapse of our society in general. Barter and food lines would prevail and millions more would lose jobs, homes and hope. It's not a pretty picture no matter which way we look. So how do you turn around a runaway train?

Right now these banks still have large positions in the economic food chain. Yes, they need to be broken up and those who gamed the system need to be investigated and prosecuted. Regulations that were ignored for at least a decade, if not longer, need to be reinforced and a full accounting of how this system failed (including investigations of the "watchdogs") is imperative if our economy is ever to regain confidence and credibility. These are very big and complex matters...some will be dealt with in federal and state courts while others will be determined by screwed investors in civil court. The fat cats who oversaw this disaster are far from out of the woods and while they may look like they're getting away with it, the sweat on their brows when they testify say different.

The assumption that things would turn around in 30 or 60 or 90 days after years of systemic abuse is Pollyanish...as we're just starting to learn what went wrong and who was responsible. Drastically canabalizing the banking system at this point would solve little while trying to gain control of it could be the way out of this darkness. To do that, you have to deal with what's there now and make the changes as you gain more control and influence. We're seeing this with the GM situation (and look at the monkeys howl at that move) and I suspect as the government gains more control over failed banks and other institutions, mangement changes will happen as well.

Unfortunately, virtually anyone Obama brings in to fix or deal with Wall Street will be found to have some kind of connections. And those who don't would be like having a person steer a car that's never driven. There's no easy answers here and President Obama's legacy and political future ride on turning the tide here.

[girl gone mad]

2. Putting a couple of large banks into receivership is not..

going to bring about the collapse of the entire banking system.

[KharmaTrain]

3. They're Being Nationalized...

Shhh...but don't tell anyone. When you take over 30 or 40 or 80% of the assets of a company, that gives you power to shape the company's future...and I expect that will happen.

Be it nationalization (albeit not being called as such) or ending up in receivership, the end result will be to separate the good assets from the bad and then to try to restructure. The difference is how much of a shock to the system. A quick shock could wipe out pensions and endowments...make this depression go deeper quickly. Or do you try for a softer approach. I surely don't have the answers...nor do I think even the most accomplished economist does. It's all play it by ear...

[girl gone mad]

4. No, they aren't being "nationalized"

If they were being nationalized, management would have been fired, bondholders would have had to take a haircut and the toxic assets would have written down. Instead, management have been given bonuses, bondholders have been fully rescued and the toxic assets are being marked to myth.

[bvar22]

7. The blind belief that effective regulation will be put in place...

.....AFTER the failed banks and failed bankers are Bailed Out is Pollyanish.

The time to demand accountability is BEFORE the money is handed over.

How many times have the politicians of both parties promised to "go back and fix it later"?
Funny how that never seems to happen.

[truedelphi]

8. We have no guarantee that the banks still won't fail

Except if they fail now, they do so while their top people run off with our 3 to 12 Trillion Bucks.

And even if they don't fail, indications are that they won't be loaning out money to normal people any time soon. And so how many jobs will have come about in return for the Trillions?

And if there are not many jobs coming about, then how will the nation recover?

[Warren Stupidity]

5. I really like the term "Banksters"

that sums up my feelings on this mess and who is responsible.

[Pastiche423]

6. K&R!

Right on the money! (As it were).